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Cummins (CMI) Likely to Beat on Q4 Earnings: Stock to Gain?

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Cummins Inc.CMI is set to report fourth-quarter 2016 and full-year results on Feb 9. In the last quarter, the company delivered a positive earnings surprise of 4.66%. Let's see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Cummins is likely to beat earnings this season because it has the right combination of the two key components.

Zacks ESP:Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +0.99%. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Cummins Inc. Price and EPS Surprise

Cummins Inc. Price and EPS Surprise | Cummins Inc. Quote

Zacks Rank: Cummins currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Ranks #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings. Conversely, we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Cummins' Zacks Rank #3 and positive ESP make us reasonably confident of a positive earnings beat.

What is Driving the Better-than-Expected Earnings?

Cummins has the potential to benefit from its innovative product portfolio. The company is poised to gain from the acquisitions made in North America and expansion through partnerships. It has completed more than 10 acquisitions since 2014.

In 2016, revenues from China across all segments, including joint ventures, are expected to increase 4%. Revenues are likely to be driven by strong demand in the heavy- and medium-duty truck market. In India, revenues across all segments, including joint ventures, are expected to improve 5% driven by stronger construction demand and rising power generation demand, partly offset by weaker truck outlook.

However, Cummins projected revenues to decrease in 2016 due to an expected decline in industry production of heavy-duty trucks in North America, and weak global demand for industrial engines and power generation equipment. Cummins expects revenues at the Engine segment to fall 11% due to weaker truck production in North America. In the Power Generation market, the company expects revenues to decrease 14%. At the Distribution segment, revenues for 2016 are expected to dip 1% as lower revenues from industrial engines and power generation segments will likely offset the benefits of recent acquisitions. Revenues from the Components segment are expected to fall 8%. Cummins expects EBIT for 2016 to be 11.3%, down from 12.5% recorded in 2015.

Price Performance

Cummins has marginally underperformed the Zacks categorized Automotive-Internal Combustion Engines industry over the last three months. The company's share price has increased 12.66% over this period while the industry saw a 12.74% gain.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

General Motors Company GM , slated to report fourth-quarter 2016 and full-year results on Feb 7, has an Earnings ESP of +0.88% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

Magna International Inc. MGA has an Earnings ESP of +0.74% and a Zacks Rank #3. The company's fourth-quarter 2016 and full-year financial results are expected to be released on Feb 24.

American Axle & Manufacturing Holdings, Inc. AXL has an Earnings ESP of +4.41% and a Zacks Rank #3. The company is expected to report fourth-quarter 2016 and full-year financial numbers on Feb 10.

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American Axle & Manufacturing Holdings, Inc. (AXL): Free Stock Analysis Report

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Cummins Inc. (CMI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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